Earnings report analysis for Tesla, Inc. (TSLA)
Summary and analysis of the Q3 earnings report for Tesla, Inc. (TSLA)
Introduction
Welcome to the Thematic Earnings Report Analysis, where we break down the latest company earnings reports and analyst calls and provide an overvalued, undervalued, or fairly valued valuation analysis relative to the company's competitors and industry.
In each analysis, we start by providing a concise summary of the prior earnings call, giving you the necessary context just a few days before the next report. Once the latest report concludes, we’ll update this post with a fresh summary and compare it to previous reports, highlighting key insights, trends, and changes to help you stay informed and ahead of the curve.
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TL; DR
The Thematic evaluation still views Tesla (TSLA) as overvalued in relation to comps and its industry. Comparing the most recent earnings report to the prior Q2 report, Tesla has done much to address concerns around sales, cost management, and pricing pressures. With more clarity around the Robotaxi and future strategies, it's more palatable to buy into Tesla's future, even at very high valuations.
Most recent report: October 23, 2024
Thematic evaluation
Overvalued | Full evaluation (as of Oct. 24, 2024)
Tesla's current valuation appears moderately overvalued based on its high EV/EBITDA ratio of 54.54 compared to the industry average of 39.03, despite strong financial performance and growth prospects. While the company has significant growth opportunities and technological advantages, the premium valuation doesn't fully account for increasing competition, decelerating revenue growth, and potential regulatory challenges.
Key takeaways
- Strong Financial Performance Despite Industry Headwinds: Tesla's record Q3 results demonstrate resilience in a challenging automotive market, highlighting its strong competitive position.
- Autonomous Driving as a Key Differentiator: Significant progress in FSD technology is crucial for Tesla's future growth and competitive advantage, potentially transforming the company into a mobility services provider.
- Cost Management and Efficiency are Critical: Tesla's focus on cost reduction across all segments is essential for maintaining profitability and achieving its ambitious growth targets.
- Regulatory Landscape Presents Both Challenges and Opportunities: Navigating the fragmented regulatory landscape for autonomous vehicles is a key challenge, but successful approvals could unlock significant market potential.
- Strategic Diversification Beyond Vehicles: Tesla's expansion into energy storage and AI positions the company for long-term growth and diversification beyond its core automotive business.
- Investor Uncertainty Regarding xAI's Impact: The lack of clarity regarding the relationship between Tesla and xAI raises concerns among investors about resource allocation and potential conflicts of interest.
- China Market as a Growth Engine: The significant outperformance of the Chinese market suggests a strong growth trajectory for Tesla in other regions as EV adoption increases.
Focus of management’s prepared remarks
- Record Q3 Performance and Profitability: Tesla achieved record deliveries and profitability in Q3 2024, exceeding expectations despite a challenging automotive market.
- Growth in Energy Storage: Strong demand for Megapack and Powerwall is driving significant growth in the energy storage business.
- Autonomous Driving Progress: Significant advancements in FSD technology are expected, with a target of surpassing human driving safety by Q2 2025. The October 10th event showcased autonomous vehicle capabilities.
- Affordable Vehicle Models: Tesla remains on track to deliver more affordable models starting in the first half of 2025, aiming for a sub-$30,000 price point with incentives.
- Cybertruck Production: Volume production of the Cybertruck is anticipated to begin in 2026, with a target of at least 2 million units per year.
- 4680 Battery Cell Cost Competitiveness: Tesla's internally produced 4680 battery cells are nearing cost competitiveness with other alternatives in North America.
- Expansion of Ride-Hailing: Tesla plans to launch a ride-hailing service in California and Texas in 2025, subject to regulatory approvals.
- Long-Term Vision: Tesla's long-term vision encompasses sustainable energy, transportation, robotics, and AI, positioning the company for future growth and market leadership.
Focus of the analyst Q&A
- Affordable Model Timeline and Alignment with AI Roadmap: Analysts inquired about the timeline for the more affordable model and its integration with Tesla's AI product roadmap. Concerns were raised about the availability of a $25,000 non-robotaxi model.
- Service Center Wait Times: Analysts sought an update on Tesla's efforts to reduce long wait times at service centers.
- Tesla Semi Update: Analysts requested an update on the Tesla Semi's production timeline, growth prospects, and the integration of FSD.
- Integration of X and Grok into Tesla Vehicles: Analysts asked about the timeline for integrating X and Grok into Tesla vehicles.
- Regulatory Approvals for Unsupervised FSD: Analysts questioned the status of regulatory approvals for unsupervised FSD in California and Texas, clarifying whether approval extends to all existing Model 3 and Y vehicles.
- Tesla's 2025 Plans: Analysts sought a detailed overview of Tesla's plans for 2025.
- Tesla Roadster Update: Analysts requested an update on the Tesla Roadster's development and launch timeline.
- Robotaxi Rollout Strategy: Analysts inquired about the planned rollout strategy for robotaxis, including the use of Tesla's own fleet versus customer-owned vehicles and the compatibility with Hardware 3.
- Relationship Between Tesla and xAI: Analysts sought clarification on the relationship between Tesla and xAI, addressing concerns about potential competition for talent, technology, and Elon Musk's time. The question highlighted investor uncertainty regarding the benefits of xAI to Tesla.
Prior report: July 24, 2024
Key takeaways
- Tesla reported strong financial performance, with record quarterly revenues and robust growth in the energy storage business, which contributed to record profits.
- The company's focus on affordability through financing programs impacted revenue per unit, but is expected to be a demand driver as the feature set of its full self-driving technology improves.
- Tesla is investing heavily in AI infrastructure, including a new 50,000 GPU cluster, to support its autonomous driving and Optimus humanoid robot initiatives, which the company believes will be the key long-term value drivers.
- The company is making progress on its Robotaxi and Optimus projects, with plans to unveil an updated Robotaxi design and begin limited Optimus production in early 2024.
- Tesla is facing increased competition in the EV market, leading to discounting, but the management team remains confident in the company's ability to maintain its competitive edge through its focus on autonomy and manufacturing efficiency.
- The company is adjusting its global production and import strategies to navigate regulatory and trade policy changes, such as tariffs in Europe.
- Tesla is in discussions with several major OEMs about licensing its full self-driving technology, though the timeline for any such deals is uncertain.
Earnings call
Focus of management’s prepared remarks
- Focused on profitable growth, cost reduction, and operational efficiency
- Investing heavily in R&D, AI, and autonomous driving capabilities
- Expanding global manufacturing capacity and delivery infrastructure
- Generating positive operating cash flow to fund growth, though capital expenditures remain high
- Experiencing headwinds from macroeconomic factors like inflation and interest rates
Focus of the analyst Q&A
- New Vehicle Introductions: Questions were asked about the new vehicles Tesla is planning to introduce next year, signaling interest in the company's upcoming product lineup.
- Robotaxi Strategy: Analysts focused on Tesla's strategy for the Robotaxi, particularly the regulatory hurdles that could delay its deployment. Specific attention was given to the fact that the Robotaxi shown publicly is pedal-less and wheel-less, raising additional regulatory concerns. Additional questions were asked about Tesla’s timeline for Robotaxi deployment, highlighting interest in the regulatory and technical milestones required for its launch.
- Revenue Segmentation: There was a focus on how Tesla sees its revenue mix evolving over time, particularly whether auto revenue will fall below 50% as other segments like energy and software grow.
- Full Self-Driving (FSD) Licensing: Analysts sought clarity on Tesla's plans for licensing its FSD technology to other automakers, indicating interest in how this could be a significant new revenue stream. Following Tesla’s price reduction of FSD, analysts asked about the increased uptake and sought quantification of the impact on adoption rates.
- Impact of Tariffs: There were questions about the potential impact of European tariffs and changes to the import of batteries from China into the U.S., addressing geopolitical risks to Tesla's supply chain.
Thematic evaluation
Overvalued | Full evaluation (as of October 18, 2024)
Compared to: General Motors Co. (GM) | Uber Technologies, Inc. (UBER) | Consumer Discretionary Select Sector SPDR Fund (XLY)
Tesla's current valuation appears moderately overvalued based on its high EV/EBITDA ratio of 54.54, which significantly exceeds the industry average of 38.19. While the company has strong growth prospects in autonomous driving and energy storage, these are balanced against significant risks including intensifying competition and reliance on regulatory credits. The high valuation multiples suggest that much of Tesla's future growth potential is already priced in, leaving limited room for upside.
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